##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009.
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 000-19709
 BIOLARGO, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    65-0159115(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2603 Main Street, Suite 1155
Irvine, California 92614  (Address, including zip code, of principal executive offices)
 (949) 643-9540  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Exchange Act: None
 Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.0067 par value.
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



BIOLARGO, INC.
 FORM 10-Q
 INDEX
 PART IFinancial Statements
    
    
    1Managements Discussion and Analysis
    
    
    17Controls and Procedures
    
    
    23PART IILegal Proceedings
    
    
    24Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Exhibits
    
    
    25Signatures
    
    
    25Exhibit 4.1Exhibit 4.2Exhibit 4.3Exhibit 4.4Exhibit 31.1Exhibit 31.2Exhibit 32




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PART I
 
 Item 1. Financial Statements
 BIOLARGO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND JUNE 30, 2009
 December 31,
    
    June 30,2008
    
    2009ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    90,384
    
    
    $
    65,651Prepaid assets
    
    
    4,586
    
    
    
    4,586Inventory
    
    
    
    
    
    
    53,274Total current assets
    
    
    94,970
    
    
    
    123,511FIXED ASSETSEquipment, net
    
    
    25,954
    
    
    
    21,172Total fixed assets
    
    
    25,954
    
    
    
    21,172OTHER ASSETSLicensing rights, net
    
    
    9,633,052
    
    
    
    9,121,996Assigned agreements, net
    
    
    255,285
    
    
    
    212,739TOTAL ASSETS
    
    $
    10,009,261
    
    
    $
    9,479,418LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    993,431
    
    
    $
    913,019Accrued option compensation expense
    
    
    657,801
    
    
    
    590,099Convertible notes payable, current portion
    
    
    1,000,000
    
    
    
    2,000,000Discount on convertible notes, current portion net of amortization
    
    
    (568,738
    )
    
    
    (407,714
    )Customer deposit
    
    
    
    
    
    
    48,338Total Current Liabilities
    
    
    2,082,494
    
    
    
    3,143,742LONG-TERM LIABILITIESConvertible notes payable, net of current portion
    
    
    973,625
    
    
    
    653,035Discount on convertible notes, net of current portion and
amortization
    
    
    (400,950
    )
    
    
    (452,250
    )Total Long-term Liabilities
    
    
    572,675
    
    
    
    200,785TOTAL LIABILITIES
    
    
    2,655,169
    
    
    
    3,344,527COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTSSTOCKHOLDERS EQUITYConvertible Preferred Series A, $.00067 par value, 50,000,000
shares authorized, -0- shares issued and outstanding, at June 30,
2009 and December 31, 2008
    
    
    
    
    
    
    Common Stock, $.00067 par value, 200,000,000 shares authorized,
42,700,595 and 42,261,268 shares issued, at June 30, 2009 and
December 31, 2008, respectively
    
    
    28,319
    
    
    
    28,646Additional Paid-In Capital
    
    
    49,481,805
    
    
    
    51,864,889Accumulated Deficit
    
    
    (42,156,032
    )
    
    
    (45,758,644
    )Total Stockholders Equity
    
    
    7,354,092
    
    
    
    6,134,891TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    10,009,261
    
    
    $
    9,479,418
   1




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BIOLARGO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE-AND SIX-MONTH PERIODS
ENDED JUNE 30, 2008 AND 2009
(unaudited)
 For the three-month periods
    
    
    For the six-month periodsended June 30,
    
    
    ended June 30,2008
    
    
    2009
    
    
    2008
    
    
    2009(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Costs and expensesSelling, general and administrative
    
    
    1,038,443
    
    
    
    1,085,878
    
    
    
    2,950,657
    
    
    
    2,077,668Research and development
    
    
    43,961
    
    
    
    56,389
    
    
    
    93,684
    
    
    
    93,318Amortization and depreciation
    
    
    276,801
    
    
    
    279,192
    
    
    
    553,602
    
    
    
    558,384Total costs and expenses
    
    
    1,359,205
    
    
    
    1,421,459
    
    
    
    3,597,943
    
    
    
    2,729,370Loss from operations
    
    
    (1,359,205
    )
    
    
    (1,421,459
    )
    
    
    (3,597,943
    )
    
    
    (2,729,370
    )Other income and (expense)Interest expense
    
    
    (302,686
    )
    
    
    (471,280
    )
    
    
    (493,211
    )
    
    
    (874,806
    )Other income
    
    
    2,684
    
    
    
    (1,457
    )
    
    
    15,684
    
    
    
    1,564Net other income and (expense)
    
    
    (300,002
    )
    
    
    (472,737
    )
    
    
    (477,527
    )
    
    
    (873,242
    )Net loss
    
    $
    (1,659,207
    )
    
    $
    (1,894,196
    )
    
    $
    (4,075,470
    )
    
    $
    (3,602,612
    )Loss per common share  basic and dilutedLoss per share
    
    $
    (0.04
    )
    
    $
    (0.04
    )
    
    $
    (0.10
    )
    
    $
    (0.08
    )Weighted average common share
equivalents outstanding
    
    
    40,531,284
    
    
    
    42,480,194
    
    
    
    40,161,737
    
    
    
    42,405,360
   2




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BIOLARGO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2009
 Common StockNumber
    
    
    Par
    
    
    Additional
    
    
    Retainedof
    
    
    Value
    
    
    Paid-In
    
    
    EarningsShares
    
    
    $.00067
    
    
    Capital
    
    
    (Deficit)
    
    
    TotalBALANCE DECEMBER
31, 2008
    
    
    42,261,268
    
    
    $
    28,319
    
    
    $
    49,481,805
    
    
    $
    (42,156,032
    )
    
    $
    7,354,092Vested portion
of stock option
    
    
    
    
    
    
    
    
    
    
    953,799
    
    
    
    
    
    
    
    953,799Issuance of
warrants as part of
convertible note
offering
    
    
    
    
    
    
    
    
    
    
    648,398
    
    
    
    
    
    
    
    648,398Issuance of stock
option to related
party (New
Millenium)
    
    
    
    
    
    
    
    
    
    
    248,485
    
    
    
    
    
    
    
    248,485Issuance of stock
options to officer
and board of
director in lieu of
services
    
    
    
    
    
    
    
    
    
    
    186,726
    
    
    
    
    
    
    
    186,726Issuance of stock
for services
    
    
    283,874
    
    
    
    211
    
    
    
    131,003
    
    
    
    
    
    
    
    131,214Issuance of stock
options for
services
    
    
    
    
    
    
    
    
    
    
    94,131
    
    
    
    
    
    
    
    94,131Conversion of note
payable accrued
interest obligation
    
    
    155,453
    
    
    
    116
    
    
    
    67,575
    
    
    
    
    
    
    
    67,691Fair value of
warrant re-pricing
    
    
    
    
    
    
    
    
    
    
    52,967
    
    
    
    
    
    
    
    52,967Net loss for the
six-month period
ended June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,602,612
    )
    
    
    (3,602,612
    )42,700,595
    
    
    $
    28,646
    
    
    $
    51,864,889
    
    
    $
    (45,758,644
    )
    
    $
    6,134,891
   3




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BIOLARGO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2008 AND 2009
 For the six-month periodsEnded June 30,2008
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (4,075,470
    )
    
    $
    (3,602,612
    )Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities:Non-cash interest expense related to conversion of
note holder obligations
    
    
    
    
    
    
    21,387Non-cash interest expense related to the fair value
of warrants issued in conjunction with our
convertible notes
    
    
    382,110
    
    
    
    736,634Non-cash expense related to options issued to
officers and board of directors
    
    
    690,109
    
    
    
    645,778Non-cash expense related to warrants and options
issued to consultants
    
    
    1,194,953
    
    
    
    349,500Issuance of stock for services provided
    
    
    
    
    
    
    188,702Amortization and depreciation expense
    
    
    553,602
    
    
    
    558,384Increase in inventory
    
    
    
    
    
    
    (53,274
    )Increase in customer deposit
    
    
    
    
    
    
    (48,338
    )Increase in accounts payable and accrued expenses
    
    
    187,730
    
    
    
    403,020Net Cash Used In Operating Activities
    
    
    (1,066,966
    )
    
    
    (704,143
    )CASH FLOW FROM INVESTING ACTIVITIESPurchase of fixed assets
    
    
    (16,414
    )
    
    
    Net Cash Used in Investing Activities
    
    
    (16,414
    )
    
    
    CASH FLOWS FROM FINANCING ACTIVITIESProceeds from exercised warrants
    
    
    
    
    
    
    Payments on note payable
    
    
    
    
    
    
    Proceeds from convertible notes
    
    
    613,000
    
    
    
    679,410Net Cash Provided By Financing Activities
    
    
    613,000
    
    
    
    679,410NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    145,007
    
    
    
    (24,733
    )CASH AND CASH EQUIVALENTS  BEGINNING
    
    
    229,834
    
    
    
    90,384CASH AND CASH EQUIVALENTS  ENDING
    
    $
    84,237
    
    
    $
    65,651SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATIONCash Paid During the Period for:Interest
    
    $
    
    
    
    $
    Income taxes
    
    $
    
    
    
    $
    Conversion of interest related to our convertible notes
    
    $
    
    
    
    $
    65,338Conversion of convertible notes to shares of the Companys
common stock
    
    $
    75,000
    
    
    $
    Conversion of accrued expenses to shares of the Companys
common stock:Board of Directors and officer obligations
    
    $
    
    
    
    $
    150,000Consultant obligations
    
    $
    
    
    
    $
    75,678Conversion of related party  New Millennium
and other
    
    $
    
    
    
    $
    242,358SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:Issuance of warrants in conjunction with convertible note
offerings
    
    $
    601,898
    
    
    $
    679,410Re-priced warrants in conjunction with convertible
note offering
    
    $
    
    
    
    $
    52,967
   4




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Business and Organization
 Outlook
     (See Note 4.)
     5




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Organization
  Business Overview
        6




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Odor-No-MoreÔ
         Note 2. Odor-No-More
 Inventory
  Customer Deposits
  Note 3. Intangible Assets/Long-lived Assets
    7




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 4. Sale of Unregistered Securities
 Spring 2009 Offering
    Fall 2008 Offering
      8




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Spring 2008 Offering
     Note 5. Extension of Maturity Date of 2007 Offering
  Note 6. Issuance of Common Stock Options in exchange for payment of payables
    9




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Note 7. Warrants
 Spring 2009 Warrants
  Fall 2008 Warrants
   Other Warrants
    10




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Number ofShares
    
    
    Price RangeOutstanding as of December 31, 2008
    
    
    5,193,361
    
    
    $
    0.125  2.00Issued
    
    
    2,831,674
    
    
    $
    0.75  1.00Exercised
    
    
    
    
    
    $Expired
    
    
    (923,111
    )
    
    $
    0.50  0.875Outstanding as of June 30, 2009
    
    
    7,101,924
    
    
    $
    0.125  2.00
  2008
    
    
    2009Risk free interest rate
    
    
    2.11
    %
    
    
    0.52  1.30
    %Expected volatility
    
    
    310
    %
    
    
    253  380
    %Expected dividend yield
    
    
    
    
    
    
    Forfeiture rate
    
    
    
    
    
    
    Expected life in years
    
    
    1.50
    
    
    
    0.50  3.00
   Note 8. Stockholders Equity
 Preferred Stock
  Common Stock
   11




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 9. Stock-Based Compensation and Other Employee Benefit Plans
 2007 Equity Incentive Plan
         12




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   WeightedAverageOptions
    
    
    Shares
    
    
    
    
    
    
    Price perOutstanding
    
    
    Available
    
    
    Price per share
    
    
    shareBalances, December 31, 2008
    
    
    785,000
    
    
    
    5,215,000
    
    
    $
    0.35  $1.89
    
    
    $
    1.02Granted
    
    
    812,135
    
    
    
    (772,135
    )
    
    $
    0.28  0.55
    
    
    $
    0.49Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balances, June 30, 2009
    
    
    1,597,135
    
    
    
    4,442,865
    
    
    $
    0.28  $1.89
    
    
    $
    0.74
  Weighted
    
    
    
    
    
    
    Currently ExercisableAverage
    
    
    Weighted
    
    
    Number ofRemaining
    
    
    Average
    
    
    Shares at
    
    
    WeightedContractual
    
    
    Exercise
    
    
    June 30,
    
    
    AverageOptions Outstanding at June 30, 2009
    
    Exercise Price
    
    
    Life
    
    
    Price
    
    
    2009
    
    
    Exercise Price20,000
    
    $
    0.40
    
    
    
    10
    
    
    $
    0.40
    
    
    
    20,000
    
    
    $
    0.40605,000
    
    $
    0.94  1.03
    
    
    
    10
    
    
    $
    0.97
    
    
    
    105,000
    
    
    $
    0.9450,000
    
    $
    1.89
    
    
    
    10
    
    
    $
    1.89
    
    
    
    50,000
    
    
    $
    1.89110,000
    
    $
    0.35  1.65
    
    
    
    10
    
    
    $
    1.04
    
    
    
    110,000
    
    
    $
    1.0460,000
    
    $
    0.28  0.38
    
    
    
    10
    
    
    $
    0.30
    
    
    
    60,000
    
    
    $
    0.30622,135
    
    $
    0.50
    
    
    
    3
    
    
    $
    0.50
    
    
    
    622,135
    
    
    $
    0.50120,000
    
    $
    0.55
    
    
    
    3
    
    
    $
    0.55
    
    
    
    120,000
    
    
    $
    0.55
 Stock Options Issued Outside the 2007 Equity Incentive Plan
    13




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Non planOption
    
    
    2007 PlanRisk free interest rate
    
    
    2.17  4.50
    %
    
    
    2.75  4.72
    %Expected volatility
    
    
    482  800
    %
    
    
    482  769
    %Expected dividend yield
    
    
    
    
    
    
    Forfeiture rate
    
    
    
    
    
    
    Expected life in years
    
    
    3
    
    
    
    3
     Note 10. Accounts Payable and Accrued Expenses
  December 31,
    
    
    June 30,2008
    
    
    2009Accounts payable and accrued expenses
    
    $
    302,518
    
    
    $
    385,001Accrued interest
    
    
    560,031
    
    
    
    382,027Officer and Board of Director payable
    
    
    130,882
    
    
    
    145,991Total Accounts Payable and Accrued Expenses
    
    $
    993,431
    
    
    $
    913,019
   14




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      Note 11. Related Party Transaction
 New Millennium
      15




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BIOLARGO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 12. Commitments and Contingencies
 Litigation
  Stock-Based Commitments
  C.F.O Agreement Extension
   
    
    an option to purchase 50,000 shares of the Companys common
stock, granted on February 23, 2009, at an exercise price
equal to the closing price of a share of the Companys
common stock on the grant date, such option to vest in full
90 days after grant; and
    
    options to purchase 10,000 shares of the Companys common
stock, each such option to be granted on the last day of
each month commencing April 2009 and ending January 2010,
provided that the Engagement Extension Agreement with Mr.
Dargan has not been terminated prior to each such grant
date, at an exercise price equal to the closing price of a
share of the Companys common stock on each grant date,
each such option to be fully vested upon grant.
  Note 13. Subsequent Events
 Promissory Note
  Stock Issuances
    16




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    our business plan;
    
    the commercial viability of our technology and products incorporating our technology;
    
    the effects of competitive factors on our technology and products incorporating our technology;
    
    expenses we will incur in operating our business;
    
    our liquidity and sufficiency of existing cash; and
    
    the success of our financing plans.
      Overview
    17




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Odor-No-More
         18




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Results of OperationsComparison of the three- and six-month periods ended June 30, 2008 and
2009
  Revenue
  Selling, General and Administrative Expense
       19




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Interest expense
  Research and Development
  Net Loss
  Liquidity and Capital Resources
    20




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Obligation to New Millennium Capital Partners, LLC
      21




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2007 Equity Incentive Plan
   Critical Accounting Policies
       22




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Recent Accounting Pronouncements
 FASB
Accounting Standards Codification TM The TM and the Hierarchy of
Generally Accepted Accounting Principles.
  
 Item 4. Controls and Procedures
        23




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PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Spring 2009 Offering
    Fall 2008 Offering
    24




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Item 6. Exhibits
  Exhibit No.
    
    Description4.1
    
    
    Form
of Convertible Note4.2
    
    
    Form
of Warrant to Purchase Common Stock (One-Year Warrant)4.3
    
    
    Form
of Warrant to Purchase Common Stock (Three-Year Warrant)4.4
    
    
    Form
of Promissory Note31.1
    
    
    Certification of Chief Executive Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or
Rule 15(d)-15(e).31.2
    
    
    Certification of Chief Financial Officer of Quarterly Report Pursuant to 18 U.S.C. Section 135032
    
    
    Certification of Chief Executive Officer and Chief Financial Officer of Quarterly Report
pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e).
 
 SIGNATURES
  BIOLARGO, INC.Date: August 14, 2009
    By:
    /s/ DENNIS P. CALVERTDennis P. CalvertChief Executive Officer  25




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EXHIBIT INDEX
 Exhibit No.
    
    Description4.1
    
    
    Form
of Convertible Note4.2
    
    
    Form
of Warrant to Purchase Common Stock (One-Year Warrant)4.3
    
    
    Form
of Warrant to Purchase Common Stock (Three-Year Warrant)4.4
    
    
    Form
of Promissory Note31.1
    
    
    Certification of Chief Executive Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or
Rule 15(d)-15(e).31.2
    
    
    Certification of Chief Financial Officer of Quarterly Report Pursuant to 18 U.S.C. Section 135032
    
    
    Certification of Chief Executive Officer and Chief Financial Officer of Quarterly Report
pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e).
  26